Q1 2024 DoubleDown Interactive Co Ltd Earnings Call

Participants

In Keuk Kim; Chief Executive Officer, Director; DoubleDown Interactive Co Ltd

Joseph Sigrist; Chief Financial Officer, Director; DoubleDown Interactive Co Ltd

Aaron Lee; Analyst; Macquarie Group

Greg Gibas; Analyst; Northland Securities

Presentation

Operator

Good afternoon, and welcome to DoubleDown Interactive's earnings conference call for the first quarter ended March 31, 2024. My name is Brianna, and I will be your operator this afternoon.
Prior to this call, DoubleDown issued its financial results for the first quarter of 2024 in a press release. A copy of which has been furnished in a report on Form 6-K filed with SEC and is available in the Investor Relations section of the company's website at www.doubledowninteractive.com. You can find the link to the Investor Relations section at the top of the homepage.
Joining us on today's call are DoubleDown CEO, Mr. In Keuk Kim; and CFO, Mr. Joe Sigrist. Following the remarks, we will open the call for questions.
Before management begins their formal remarks, I need to remind everyone that some of the management's comments today will be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended in Section 21E of the Securities Exchange Act of 1934 as amended. And the company hereby claims the protection of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are statements about future events and include expectations and projections not present or historical facts, and can be identified by the use of words such as may, might, will, expect, assume, believe, intend, estimate, continue, should, anticipate or other similar terms. Forward-looking statements include and are not limited to those regarding the company's future plans, mergers, and acquisition strategies, strategic and financial objectives, expected performance, and financial outlook.
Forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially and adversely from what the company expects. Therefore, you should exercise caution in interpreting and relying on them. We refer you to DoubleDown's annual report on Form 20-F filed with the SEC on March 28, 2024, and other SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition.
These forward-looking statements are made only as of the date of this call. The company does not undertake and expressly disclaims any obligations to update or alter the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
During the call, management will discuss non-GAAP measures, which are believed by management to be useful in evaluating the company's operating performance. These measures should not be considered superior to, in isolation, or as a substitute for the financial results prepared in accordance with GAAP. A full reconciliation of these measures to the most directly comparable GAAP measure is available in the earnings release and on DoubleDown's Form 6-K filed with the SEC prior to this call.
I would like to remind everyone that this call is being recorded and will be made available for replay via link in the Investor Relations section of DoubleDown's website.
It's now my pleasure to turn the call over to DoubleDown's CEO, In Keuk Kim.

In Keuk Kim

Thank you, Brianna. Good afternoon, everyone. Thank you for joining us on our 2024 first quarter earnings call. Today, we announced that total Q1 revenue was 88.1 million with 79.8 million generated by our social casino free-to-play games and 8.3 million coming from the operations of supranational, our recent gaming application. Q1 revenue from our social casino free-to-play games was up 1% on a quarterly sequential basis and up 3% compared to Q1 2023. And then we continue to do an excellent job in converting revenue to profit and cash flow with adjusted EBITDA for the first quarter, rising 26% year over year to 31.9 million and cash flow from operations at 35 million. Our established social casino game. Doubledown casino or TVC. continues to be the driver of our strong results as we generated year-over-year increases in our some of our most important KPIs including average monthly revenue per payer and payer conversion rates. More specifically, we are growing monetization with our core paying players as they continue to recognize the great entertainment experience and compelling value that we offer. We believe our revenue growth reflects the benefits we are seeing from the introduction of new meta features within DoubleDown casino. It features such as lucky R & Wind Power, which I mentioned during last quarter's call at total funds applying ADC, thereby driving player engagement and retention, and we believe leading to higher overall monetization. In addition, during the second quarter, we plan to launch mission Pass, which offers players daily, weekly and monthly costs alongside their casino games play. Our strategy in Social Casino is to continue enhancing the entertainment value of DTC while remaining disciplined in user acquisition and R&D spending to drive strong profitability and free cash flow.
Turning to Spartan nation, Q1 represented our first full quarter of operation of this gaming business. Our focus at this early stage is to scale that business, and we were pleased with the results so far with supranational Q1 revenue contribution of 8.3 million. The gaming sector represents an exciting growth growth opportunity for DoubleDown, and we are very pleased to be off to such a strong start. We have plans for continued improvement the supranational condition is just an initial step in our goal to diversify our business into new gaming categories that have highly addressable market opportunity. Given our excellent financial foundation, we continue to evaluate ways to expand into these markets, both organically and through M&A. As we execute on this strategy, we will apply the same capital discipline we have exhibited over the years as an example, on our first quarter call, I highlighted the launch of our first game in the skill-based gaming category. However, after ramping up marketing investment to hire players in Q1 its performance metrics did not meet our requirements, and as such, we have decided not to proceed with additional user acquisition activities going forward. We are continuing to invest in new internally developed mobile games, including those we expect to launch in 2024. But our overriding principle when we undertake these new game launches is to ensure we are deploying our technology and expertise in a manner that creates additional value for shareholders. If that proves not to be the case, we have demonstrated that we will quickly move on.
Now I'll turn it over to our CFO, Joe Sigrist, to walk us through our financials before providing my closing remarks. Joe?

Joseph Sigrist

So thank you, IK, and good afternoon, everyone. Our revenues for the first quarter of 2024 or $88.1 million, comprised of $79.8 million in revenues from our social casino free-to-play games and 8.3 million of revenues from supranational. This compares to total company revenues of $77.6 million in Q1 2023.
As I came mentioned, social casino free-to-play revenue in the first quarter of 2024 was up 1% sequentially from the fourth quarter of 2023 and 3% year over year. In the first quarter. Several KPI metrics for our social casino business, again improved compared to the year ago period, including average revenue per daily active user or are now increased to $1.26 in Q1 2024 from $1.3 in Q1 2023, marking a 22% increase payer conversion ratio, which is the percentage of players who pay within the social casino apps increased to 6.4% in Q1 of 2024 compared to 5.8% in Q1 of 2023 and average monthly revenue per payer at $281 in the first quarter of 2024 increased 27% from $221 in Q1 of 2023 operating expenses rose on both a year-over-year and quarterly sequential basis to $57.1 million compared to 52.2 million in the first quarter of 2023 and 47.5 million in the fourth quarter of 2023. The OpEx increase in Q1 was primarily due to the inclusion of super nations operating expenses as this was the first full quarter consolidation of its financial results into those of DoubleDown. Sales and marketing expenses for the first quarter of 2024 were 14.8 million a decline of 8% compared to Q1 2023 and up nearly 50% on a quarterly sequential basis. The sequential increase was comprised of the first time full quarter inclusion of super sales and marketing expenses as well as the acquisition of players for the skill-based gaming app I K. noted earlier, sales and marketing costs directed at acquiring new social casino players continued to reflect our focus on spending to ensure we deliver the best return on this investment for the next several quarters. We anticipate that overall sales and marketing expenses for the Company will stay relatively close to or below the Q1 level.
Net income for the first quarter of 2024 was 30.4 million or $12.20 $0.33 per diluted share and $0.61 per ADS, a rise of 28.3%, 28.1% and 27.1%, respectively. Compared to the net income of $23.7 million or $9.55 per diluted share and $0.48 per ADS in the first quarter of 2023. Adjusted EBITDA for the first quarter of 2024 increased 26% to $31.9 million compared to 25.4 million for the prior year quarter. Adjusted EBITDA margin was 36.2% for Q1 2024, representing an improvement from 32.8% in Q1 2023 net cash flows from operations were 34.9 million for the first quarter of 2024 compared to net cash flow from operations of $19.2 million in the prior year period.
Finally, turning to our balance sheet. As of March 31st, 2024, we had $310 million in cash, cash equivalents and short-term investments with a net cash position at quarter end of approximately $272 million or approximately $5.50 per ADS, excluding the outstanding loans with our controlling shareholder W. games.
That completes my financial summary. Now I'll turn the call over to IK for closing remarks.

In Keuk Kim

Thank you, Joe. We began 2024 demonstrating our ability to further expand our operating and financial performance momentum of the company with strong Q1 results in our core social casino business and an excellent start to our new gaming business in our core social casino business. We will continue enhancing and improving DoubleDown casino through ongoing product development, marketing initiatives and live ops efforts. We see this as a capital efficient way to continue driving engagement and monetization that also delivers high cash flow.
As we mentioned during last quarter's call, we also are focused on enhancing our already strong margins by increasing our direct consumer payment volume where it is early days with this initiative, we are beginning to expand the options that players have to purchase chips for DoubleDown casino in the near term at supranational, our focus is to invest to grow the player base in both the U.K. and Sweden. We look forward to the continued positive impact of these efforts to scale our business and we will continue to pursue growth through participation in adjacent categories of gaming through both our organic efforts and as we continue to evaluate M&A opportunities.
We're now happy to take your questions, Brianna.

Question and Answer Session

Operator

(Operator Instructions) Aaron Lee, Macquarie.

Aaron Lee

Great. Thanks for taking my question and congrats on the quarter. So wanted to get some more color on the superannuation business and get a sense for First, how the quarter performed relative to your expectations? Sounds like it came in above. And secondly, how should we be thinking about the balance of the year?
I believe there's some summer seasonality in there, but do you expect momentum to build sequentially as we go through 2Q to 4Q? Thank you.

Joseph Sigrist

Yes, thanks, Aaron. Appreciate the questions. So with regards to the Q1 performance of super nation. We are pleased with the results. We feel like now. I guess after the end of the first quarter, the first five quarters of having their business part of ours has been very positive. As we mentioned, the focus initially has been on scaling new new user acquisition activity. And we have I've been pleased to see the fairly quick ability to acquire players and then turn them in into meaningful revenue contributors on as it relates to the rest of the year, I mean, we'll have to see if we can continue to see that a quick conversion, if you will, from marketing investment into into plain depositing and ultimately revenue. And you know, we'll look, we'll see how it plays out. But we, as I case said, we're very pleased with the start of this.

Aaron Lee

Got it. Understood. And then just a quick housekeeping item. With this being the first full quarter of super nation within your results, how should we think about your cost structure? Is 1Q OpEx a good level to run forward for expenses like R&D and G&A?

Joseph Sigrist

Yeah. By and large, I think everything is kind of full quarter on included in Q. one and relative to.
So the expense categories, I mean, the only variability is going to be on the marketing side, as I mentioned, marketing will will likely be at or below where we have been or where we were in Q1 for the rest of the year on a quarterly basis, primarily because of the fact that we won't be investing in our first skill-based game any longer to acquire new players. But other than that, I think the run rates are pretty much hold true.

Aaron Lee

Got it. Very helpful. Thank you.

Operator

Greg Gibas, Northland Securities.

Greg Gibas

Hey, good afternoon. I can Joe, congrats on the results. I wanted to follow up on just the core business ex super nation on the nice to see that up year over year considering it's been challenging for, but the casino as a whole. I'm just kind of curious if you could discuss maybe what do you think drove that?

Joseph Sigrist

Yes. I think as we mentioned last quarter, which also we were pretty pleased with relative to our results within the core business. It's up. It's a lot about the product and product differentiation and being able to incent players to continue to play. And then ultimately, we know that leads into monetization. So and IK. mentioned the ongoing development of new meta features. These are features that span the various individual casino and slot games that we have in the DoubleDown casino. And we're continuing to focus on that and developing additional really fun. I mean, at the end of the day, people have fun when they play DoubleDown casino. And certainly they have fun with me play our individual games, individual slots. But we also want them to have fun as they return to play and they have additional journeys and quests and things that we add on, if you will, on top of the individual games that add to the fun and at least over the last couple of quarters. But we think that's been that's been a good part of why people are so excited to still be with us and continue to play and to pay.

Greg Gibas

Great. That's good to hear some cool. And then switching over to super nation, you know, my understanding pretty strong results out of them. You wondering if you could just kind of talk about your expectations there and you have kind of how it how that performance compares to the year ago quarter with them? And if you could maybe just discuss kind of seasonality and if it differs from your core business?

Joseph Sigrist

Yeah. I mean, it's early days with super nation being part of the US. I mean, we're learning the gaming business, but we also do know that the initiatives that we and they have been working on with their business and for their business on the marketing side has has contributed to the strong results that we reported today in their business. And that's why we want to continue those. And them know, they're also very focused on product differentiation as well. So their focus is, I think we've described in the past, not just on the hardcore gaming player, but also on the more entertainment oriented and and kind of fine oriented gambler is important. So their main brand called duals is an important part of their product differentiation strategy, which allows not just as I said, the really committed gambler, but also other folks who who want to have fun, obviously, attempting to win money, but also to be competing against their friends who are also playing in and winning the so-called duals or competitions with a group of players. It's all part of the strategy they have, which seems to be working out quite well relative to the focus on on players going to their brand.

Greg Gibas

Interesting. Got to I guess last one, just wanted to get your updated thoughts on buybacks going forward. You don't are you kind of seeing better uses of cash. I just wanted to get your updated thoughts there.

Joseph Sigrist

Well is, as we've just described in the past, we absolutely we have the board, our controlling shareholder absolutely believe they believe the best use of cash at least for the foreseeable future.
Our cash, our strong balance sheet is in potential acquisition M&A activity. I'm doing the things that we have done with super nation again and them and we are continuing to look toward opportunities and we have our screens and our filters and our actions that allow us to take a look at the market and see what companies or businesses are available to help to help us we grow the business.

Greg Gibas

Great. Thank you.

Joseph Sigrist

Thanks, Greg.

Operator

(Operator Instructions) This now concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.